Summary: Tunisia’s democratic transition unique in the region, but threatened by economic stagnation.
Since we frequently lament the lack of material in English on the Maghreb we circulate today a longer article than usual on Tunisia published in the Cairo review for which we are grateful to the veteran journalist Francis Ghilès of the Barcelona Centre for International Affairs (CIDOB).
The news last week was of a second strike within a month by lawyers and a threatened public sector general strike next month
Tunisia’s Unsteady Progress
Economic challenges threaten the country’s transition to democracy and constitutional government.
By Francis Ghilès, November 24
It is six years since the fall of the dictator Zine El-Abidine Ben Ali in Tunisia set off an unprecedented wave of revolts across North Africa and the Middle East. Far from ushering in a period of democratic transition, the ensuing conflicts have witnessed a return to internecine tribal, family, and religious conflict of the worst kind. Tunisia stands out as the only Arab country where a democratic transition of sorts has taken place. Fragile it remains, incomplete also. Yet there is greater freedom of expression today in the country than before 2011, torture is not commonplace and successive elections have seen the Islamist Ennahda party gain and then lose a plurality of votes.
This transition is however being played against the backdrop of a stagnant economy. Tunisians languishing in the country’s relatively poor interior, who initiated the revolt against Ben Ali’s predatory rule, have yet to enjoy any economic benefit from their daring when they risked their lives for more jobs, better social conditions, and greater respect from their wealthy brothers on the Mediterranean coast. Since 2010, the Tunisian economy has suffered an estimated 5.5 percent loss in annual per capita Gross Domestic Product (GDP). Hardest hit has been foreign direct investment.
The economy sputters: GDP grew at 0.8 percent last year and an estimated 1.5 percent in 2016. However, faster growth, more jobs, and a more equitable sharing of national wealth between social classes and region remains elusive yet essential to Tunisia’s future stability. Faster economic growth is predicated on bold reforms but they look unattainable so long as the government led by the Nidaa Tounes and Ennadha parties fails to reform a tax system which allows the professional classes, such as lawyers, doctors and architects, to avoid paying taxes; grants salary increases to an already over-bloated civil service and state companies, and turns a blind eye to the barons of a flourishing informal economy—importing cars, white goods, foodstuffs, and cigarettes, often in close association with leading politicians and parties.
That said foreign investors have not given up hope on the country. Earlier this year, Actis, a leading emerging market fund based in London, bought 40 percent of the capital of Medis, which specializes in generic medicine and boasts a fast-growing joint venture in Algeria and enjoys rising exports in francophone Africa and the Middle East. The Emirati fund Abraaj took a stake in Lilas, which specializes in hygiene and paper products. Peugeot meanwhile is expected to announce an expansion of its manufacturing of car spare parts shortly. Pharmaceuticals remain, with mecatronics, aerospace spare parts, and health care in the form of private clinics for foreigners, areas of activity where Tunisia has much to offer. If better security holds, then foreign investors will return to Tunisia.
Meanwhile the steady increase in the production of phosphate rock, and hence fertilizers, augurs well in a sector which has been bedeviled by repeated strikes—since 2010 production has been more than halved. Improved security should result in the United Kingdom lifting the ban on its nationals visiting Tunisia imposed after the terrorist attack on the resort of Sousse last year. The dream scenario for next year includes a more stable Libya: instability there, as much as home grown terrorism, has scared foreigners. Rebuilding its neighbor would offer Tunisian companies rich pickings that could add 2 percent to GDP growth.
Pessimists believe that Tunisia’s unique success among Arab states in managing a transition to a more democratic form of government remains at risk from its failure to provide tangible economic gains for the majority of the population. Successive governments have added to the problems. State institutions have been hollowed out by the recruiting of an estimated 160,000 new civil servants since 2011, many of whom have no qualifications. What was once one of the Arab World’s more efficient civil services now lacks authority, and morale among many government employees is at an all time low. Optimists point to a wider context to explain the predicament: the dramatic economic situation in Egypt—which also toppled its dictator in 2011 only to fall prey to a harsher one today—and slow growth in the European Union, Tunisia’s major trading partner. The country has more well-educated young people than any other in the region, some of them keen entrepreneurs. Six years, they argue, is too short of a period in which to pass judgment—progress is patchy but real.
Security has certainly improved since 2015 when Tunisia suffered grievous terrorist attacks. Strong security cooperation with the United States, France, Germany, United Kingdom, and Algeria helped keep the threat of terrorist violence under control in 2016. Not one major attack has occurred over the past twelve months also thanks to competent professionals being appointed to run security after a terrorist assault on the presidential guard in November 2015.
Many reports from international organizations focus on the activities of Tunisian jihadists and the eradication of radical Islamism as the major threats to the future of the country. But the government’s failure to implement promised economic reforms and the tin ear of leading politicians to social grievances could prove a greater test for the young democracy. Corruption is on the increase and the black economy grows unchecked.
The state accounts for 65.5 percent of GDP—according to the Tunisian economist Hachemi Alaya in a recent comment on the country’s economic prospect. Civil servants and workers in state companies account for nearly 70 percent of the 3.4 million Tunisians who have a steady job. As in other Middle Eastern and North African countries, Tunisians since independence have shown a marked preference for a job for life in the employ of the state rather than a more risky one in the private sector. The budget deficit shot up from 0.6 percent of GDP in 2011 to 6.2 percent in 2013 and was contained at 4.8 percent in 2015.
But, as a recent study by the International Monetary Fund (IMF) suggests, the overall deficit would be much higher if the budgets of the three social protection funds and a myriad of state controlled entities were consolidated into the overall state budget. Including the cost of recapitalizing two state banks last year and another one underway would further increase the deficit. In plain language, official statistics are far from offering a reliable guide to the exact state of Tunisia’s finances, key points which needs to be addressed in view of the huge impact of the state on the country’s economy.
Of the many economic challenges that Tunis faces, four stand out that need to be tackled with courage and determination. The professional classes need to show some willingness to pay their fair share of taxes; the effective disbursement of public investment written in the 2017 budget must be increased; the trade union Union Générale des Travailleurs deTunisia (UGTT) must avoid slipping into demagoguery whilst defending its members interests. UGTT membership stands at an estimated 700,000 today and, even where its members represent a minority in the workforce as in many private companies, the union’s influence is huge. A fourth challenge is to reduce the informal economy which accounts for at least a third of real GDP as smuggled imports are often cheaper and better than locally produced goods, thus forcing the closure of many factories.
The government of Prime Minister Youssef Chahed has just thrown in the towel on reforms that its predecessor had written into the budget for 2017. They aimed at taxing doctors and lawyers by imposing a fiscal stamp on every transaction, a bold measure that would have enabled the tax authorities to start tracing, for the first time, the source of many individual incomes. It has backed out on imposing 10 percent tax on the profits of offshore companies, which pay no taxes, and have been a favorite means of illegally exporting capital. Tunisian private capital held abroad runs into tens of billions of dollars.
The fall of Ben Ali was a revolution in the system, not of the system. The Ben Ali clan lost its share of the economic cake but the newly legalized Ennahda was quick to claim its share, and some former mafia bosses of the Ben Ali era found a wide berth in the new parties. The resulting disillusionment among many Tunisians is deep. “Before 2011 we had Ali Baba and the forty thieves, now we have 4,000 thieves,” sums up what many Tunisians, well-off and poor alike, think of their country. Petty corruption is rampant. They have a cynical view of the new democratic politics that looks to them like many of the insiders of yesteryear fighting for a stake in a smaller pie. Many young people did not bother to vote in the general and presidential elections of the autumn of 2014. Nothing will stop them revolting again if their economic situation continues to deteriorate.
On tax, the figures speak for themselves: the tax authorities and UGTT estimate that evasion stands at between five and seven billion Tunisian dinars. All Tunisians who work for the state (632,000 in the central administration alone—which is nearly twice the Greek equivalent of 370,000 for a country of the same size, eleven million people) and bona fide private companies (680,000) pay their taxes at source. But those who work as self-employed individual professionals pay a minimum of taxes. This invariably well-off group contributes a paltry 0.2 percent of the tax take. These people are influential in most political parties and hell bent on preserving their privileges, dare one say their impunity. The government has tried to convince UGTT to put off till 2018 salary increases written into the 2017 budget by the previous government. Public sector wages have increased from six billion Tunisian dinars ($2.7 billion) in 2010 to 13.2 billion Tunisian dinars in 2016, which represents 13 percent of GDP and 70 percent of fiscal revenue.
The arguments in favor of moderating salary rises across the board will fail if wealthier Tunisians refuse to bear their share of the cost of running the state. How, ask teachers and nurses, can so many luxury cars be clogging the streets of the capital when inflation is eating into their purchasing power? How can a Range Rover, which might typically sell in Europe for 60,000 euros plus taxes, find such ready buyers in Tunis at the exorbitant price of 530,000 Tunisian dinars (216,000 euros)? The government has just abandoned a proposal made by its predecessor to tax private swimming pools 1,000 Tunisian dinars annually despite the fact that such was the demand last summer that there were widespread cuts in the water supply.
The ostentatious display of wealth among the Tunis bourgeoisie as it sports its Audis and Mercedes in the residential suburbs of Carthage and Gammarth is nothing new; nor is the display of designer clothes and jewelry at smart restaurants. But it is provocative at a time when ordinary Tunisians are struggling to survive. The money that goes on salary increases and what is lost in tax revenue does not go to desperately needed investment, as the World Bank’s 2014 report on Tunisia “The Unfinished Revolution” notes, which spell anemic growth. A further twist to this untenable situation is that public debt as a percentage of GDP has doubled from 40 percent in 2010 to 80 percent. Sooner rather than later, this gaping hole in Tunisian finances will have to be closed.
UGTT, which celebrated its sixtieth anniversary last January, is the second oldest trade union movement in Africa. It has been one of the country’s key players since the fight for independence in the early 1950s when its charismatic leader, Ferhat Hached, was murdered by French terrorists belonging to La Main Rouge. The union has been involved in every major political crisis since independence in 1956. After the fall of Ben Ali, UGTT leader Houcine Abassi played a key role preventing the country from tipping into civil war in the summer of 2013. He helped bring into office a coalition government between Nidaa Tounes and Ennahda that presided over free elections two years ago.
Together with the Tunisian League of Human Rights, the Tunisian Order of Lawyers and the Tunisian Federation of Industry, Trade and Handicraft (UTICA), the union won the 2015 Nobel Peace Prize. Despite the prestige it then gained, UGTT national leaders are faced with many regional barons jostling for power, often encouraging strikes by members seeking higher wages ahead of the twenty-third congress next January. The effective power vacuum in Tunisia today, the discredit the state is held in, have pushed UGTT center stage but that is not a comfortable position.
In such a confused context, foreign investors are skittish. A number of foreign companies have closed shop, others have reduced their activities. Some new investors have gambled on Tunisia but their investment is way below the levels reached before 2011. The respected minister of development and investment, Fadhel Abdelkefi, rightly insists that Tunisia does not need financial handouts but investment. Calling things by their name economically is refreshing when it comes from a senior minister. The more senior ministers speak the truth, the better the chances of democracy taking root.
The IMF can encourage reforms, as can the World Bank and Tunisia’s well-wishers abroad. But it is up to Tunisian leaders to pull up their bootstraps and, by their acts, regain the trust of their people. Those who revolted in 2010 craved dignity and respect. Tunisia’s friends and international organizations have given precious support since then. They will continue to do so. But Tunisians will hope that their leaders, not least the head of state, President Beji Caid Essebsi, and the leader of Ennahda, Rachid Ghannouchi, will put an end to their game of petty party politics.
Summary: Tunisia’s democratic transition unique in the region, but threatened by economic stagnation.